These 4 Stocks Are Breaking The Market

October 31, 2017

Scott GallowayAmazon. Apple. Facebook. Google. These companies and their products are everywhere, every moment of our lives, from the second we wake ("Alexa, lights on!") to the Facebook feeds we check right before sleep.

If that doesn't frighten you, it should, argues Scott Galloway.

The premise of Galloway's new book, "The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google" is that Amazon, Apple, Facebook and Google have become so large, so influential, that they're allowed to play by totally different rules than everybody else.

With a combined market capitalization that exceeds the GDP of India, the “Four Horsemen,” as Galloway calls them, exert never-before-seen influence over our markets and our society—and somehow, we love them for it.

Galloway is a serial entrepreneur, a YouTube superstar and digital marketing professor at the New York University's Stern School of Business. He will give the keynote presentation at the 2nd Annual Evidence Based Investing conference, Nov. 2, put on by IMN and Ritholtz Wealth Management.

 

ETF.com: What is it about Amazon, Apple, Google and Facebook that made them the mega-giants they are today?

Scott Galloway: Each company speaks to a specific human instinct. Google speaks to our hard-wired need for a divine authority to ease our suffering. Facebooks taps into our need to establish connections, to love and be loved. Amazon is our consumptive gut; you may have a hundred times more than what you need, but you'll still always want more.

And Apple, I think, plays to our instinct to procreate. Expensive Apple [products] signal that you have good genes: that you're part of the innovation class, that you're smarter, richer, better educated and so on.

Tapping into these instincts has enabled these four companies to scale much bigger and faster than anybody else.

ETF.com: In your book, you argue that the four get special treatment over other companies. How so?

Galloway: Just look at Facebook. If your firm had been weaponized by Russia, you'd be the subject of lots of scrutiny. You'd probably be out of business. But Facebook says, “Oh, we're so successful, and it’s such a big problem, you can’t really expect us to figure this out," and society just buys right into it.

The New York Times, with its $90 million in cash flow, has figured out how not to be weaponized by the GRU [the main military foreign-intelligence service of the Russian Federation], yet somehow Facebook with $12 billion can’t figure it out.

Or take Google. Google controls 90%-plus of search, a market share that's bigger than the entire advertising market of any nation, with the exception of the U.S. But it’s not regulated.

Google has greater concentration of power than the railroads did when they were broken up. We treat these companies by a different rulebook.

ETF.com: Why do we do that?

Galloway: Because, as a society, we no longer worship at the altars of kindness and character; we worship at the altars of innovation and shareholder value. Largely, the most revered people in the world right now are the wealthiest—and not [those with] self-inherited wealth, but wealth through innovation, through technology.

This has created a kind of a fanaticism or zealotry that allows these companies to get away with things other companies can’t. They’re not subject to the same scrutiny that other businesses have to endure, and there are very few laws regulating them.

And it's not their fault; it's our fault.

These companies are doing exactly what they’re supposed to be doing. They're weapons of capitalism, here to create economic security for their employees and shareholders. But we elect officials who lack the backbone to go after these companies, when they abuse their incredible successes.

ETF.com: With so little appetite in Washington for regulation currently, will we have to wait until the political climate shifts significantly to see the four held to greater accountability?

Galloway: You could potentially see regulation coming out of the states. These companies have been a great deal for New York, Boston, San Francisco. But the flyover states have gotten the **** kicked out of them.

So you might see a state district attorney who decides the fastest path to the governor’s mansion is to create a populist movement and go after one or more of these companies. It could be like tobacco, where it’s not the federal government that goes after them, but individual states.

In terms of Washington, though, you'll have some huffing and puffing; there will be some truth in advertising legislation, maybe. But right now the White House doesn’t have the will or the collective IQ to go after big tech.

Where the war against them will break out, I think, is where all the biggest wars of the last century have broken out: Europe.

 

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